Bribery, plant size and size dependent distortions

Abstract

I document that small plants spend a higher fraction of their output on bribery than big plants, and that non-bribe-paying plants face higher distortions compared to bribe-paying plants in Türkiye. I develop a one-sector growth model in which size-dependent distortions, bribery opportunities, and different plant sizes coexist. In the model, plants are able to avoid distortions through bribery. The model parameters are calibrated with distortions and bribery opportunities in order to account for the plant size distribution as well as bribery expenditures by different plant sizes in the Turkish data. Counterfactual exercises show that size-dependent distortions become less distortionary in the presence of bribery opportunities. An increase in the size dependency of distortions has smaller aggregate effects since plants are able to circumvent distortions by paying larger bribes. Quantitatively, when bribery opportunities are present in the economy, mean plant size and output are 7.8 and 2.0 percent higher, respectively.